Expect a years-long downturn in Metro Vancouver’s residential real estate market due to the prolonged impacts of COVID-19.
Canada Mortgage and Housing Corporation’s (CMHC) newly released forecast states housing starts in the Vancouver region will “contract significantly in the immediate future,” with demand taking a fall due to reduced immigration, domestic migration, the loss of household income due to mass unemployment, and the increased economic uncertainty affecting consumer confidence.
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Analysts say the immediate effect of COVID-19 deepened the decline in construction activity that was already in progress before the pandemic, but housing starts are expected to see some recovery by the end of 2020 to a pace that is based on the region’s fundamentals and economic growth.
Total housing starts — new construction — could range from 11,925 units to 17,710 units in 2020, 15,290 units to 23,475 units in 2021, and 16,050 units to 24,060 units in 2022. In comparison, there were 23,404 unit starts in 2018, and 28,141 in 2019.
Prior to the pandemic, sales activity on new construction was recovering from the downturn induced by government interventionist policies, but the effect of COVID-19 will delay this recovery.
As for home prices, there will be a gradual price decline over the next two years, before a recovery beginning at the end of 2022.
A contraction in the resale market is also expected, which will see a slow pace for the remainder of 2020, with a recovery starting sometime in 2021.
Total home sales is forecast to reach 27,290 units to 29,515 units in 2020, 25,590 units to 29,800 units in 2021, and 27,100 units to 32,370 units in 2022. This is down from 33,057 unit sales in 2018 and 33,535 in 2019.
Average home prices reached $966,866 in 2018 and $923,195 in 2019. But COVID-19’s severe economic impact may send average home prices downward: $893,000 to $919,000 in 2020, $828,000 to $889,000 in 2021, and $809,000 to $889,000 in 2022.
“Average house prices will decline with weaker household budgets and the uncertain nature of the economic reopening,” reads the report.
“In addition, the uneven impact on buyers at different levels of income will result in a change to the share of condominium and single detached sales, creating additional uncertainty for the path of the average price decline.”
In the rental housing market, CMHC states there is a possibility for a rising vacancy rate over the short term — an increase from the historical regional vacancy rate low of 1% before the pandemic. This accounts for both the increased supply of rental units due to the drop in demand, as well as the increase in new purpose-built rental starts.
“The brunt of job losses has so far been borne by younger employees who are less likely to have the accumulated savings necessary to buy,” continues the report.
“The same is true of population growth in the Vancouver CMA, which is largely driven by the influx of young migrants, most of whom are immigrants to Canada. The immediate decline in migration to Vancouver is expected to reduce rental demand directly.”